Wheeler Real Estate Investment Trust, Inc. — 2015 Q3 Form 10-Q Summary
Business context and reporting period
Unaudited quarterly report for the three and nine months ended September 30, 2015. The REIT owned and operated 45 shopping centers, 10 undeveloped properties and one office building across 11 states at quarter-end. Gross leasable area was 3.34 million square feet, with 94.25% ending occupancy versus 95.20% at September 30, 2014.
Results reflect substantial acquisition activity, including 20 properties acquired during the first nine months of 2015, the internalization of the Operating Companies, and the classification of eight freestanding properties as held for sale and discontinued operations.
Financial performance and key metrics
| Metric | Three months ended Sept. 30 | Nine months ended Sept. 30 |
|---|---|---|
| Total revenue | $7.17 million, up 104.4% | $18.21 million, up 92.1% |
| Operating loss | $(5.06) million | $(10.76) million |
| Net loss attributable to Wheeler REIT | $(6.73) million | $(15.35) million |
| Net loss attributable to common shareholders | $(22.13) million | $(101.11) million |
| Loss per common share | $(0.35) | $(3.40) |
| FFO | $(2.17) million | $(4.37) million |
| AFFO | $1.36 million | $(1.02) million |
| Net cash used in operating activities | Not presented | $(6.71) million |
Q3 operating expenses were $12.23 million, including $4.82 million of depreciation and amortization and $4.90 million of corporate general and administrative expense. The resulting operating margin was approximately negative 70.6%. The reported common-shareholder loss included a $13.12 million deemed dividend related to the Series A and Series B preferred stock exchange offer and $2.28 million of preferred dividends.
At September 30, 2015, total assets were $339.04 million, including $238.21 million of net investment properties and $7.99 million of cash and cash equivalents. Total liabilities were $225.65 million and total equity was $113.38 million. Loans payable were $186.28 million, or $208.10 million including debt associated with assets held for sale. The weighted-average interest rate on fixed-rate debt was 4.79%, with a weighted-average term of 7.13 years.
Material changes versus the prior comparable period
- Revenue increased primarily because of acquisitions and increased property scale; the property portfolio grew from 28 to 45 properties and gross leasable area increased 90.2%.
- Property NOI increased to $4.85 million in Q3 and $11.97 million for the nine months, from $2.41 million and $6.66 million, respectively.
- Operating losses widened because depreciation and amortization, interest expense, corporate overhead and acquisition-related costs increased faster than revenue.
- Corporate general and administrative expense increased 61.9% in Q3 and 105.8% for the nine months. Management identified approximately $3.71 million in Q3 and $6.31 million for the nine months of non-recurring acquisition, capital-event, legal, compliance, recruitment and other expenses.
- Net cash used in operating activities increased from $4.72 million to $6.71 million, while investing cash outflows increased to $61.38 million, principally for acquisitions.
- Financing activities provided $66.11 million, including $83.42 million of net proceeds from the Series C preferred stock offering. Total debt increased from $141.45 million at December 31, 2014 to $208.10 million at September 30, 2015, including assets-held-for-sale debt.
- Series C preferred stock converted into common stock on June 11, 2015. The exchange offer for Series A and Series B preferred stock resulted in 11.44 million newly issued common shares. Common shares outstanding increased to 66.15 million from 7.51 million at December 31, 2014.
Guidance, outlook, risks and unusual items
No formal earnings or same-store operating guidance was provided. Management expects leases covering approximately 5.30% of gross leasable area that expire in the following 12 months to be renewed at comparable terms. Nine-month renewals produced a 9.01% weighted-average increase over prior rents.
Management expects to sell the freestanding properties classified as held for sale within one year. Subsequent to quarter-end, Jenks Reasors, Harps at Harbor Point and Bixby Commons were sold for aggregate contract prices of approximately $28.2 million; the filing does not provide final net proceeds or gains.
- Debt maturities of $17.70 million are scheduled during the 12 months ending September 30, 2016. Management expects refinancing on reasonable terms but cautions that failure to refinance could materially affect financial condition and results.
- Liquidity is pressured by negative operating cash flow, debt service, preferred dividends, the targeted $0.21 annual common dividend, acquisition funding and potential capital expenditures.
- The $45 million KeyBank revolving credit facility was undrawn at September 30, 2015.
- Preferred stock accretion and beneficial conversion features materially affected reported common-shareholder results, including a $72.64 million deemed distribution for the nine-month period.
- The Company faces ordinary-course litigation, including an approximately $352,000 judgment involving Perimeter Associates. The Company accrued for the judgment and intends to appeal.
- Acquisition purchase-price allocations remained preliminary at quarter-end and were expected to be finalized before December 31, 2015.
- The filing states that disclosure controls were effective as of September 30, 2015 and that there were no changes in internal control over financial reporting.
Important facts for investors to verify
- Refinancing plans and available liquidity for the $17.70 million of near-term maturities and ongoing negative operating cash flow.
- Whether acquisitions generate sufficient recurring NOI and cash flow to offset added debt, depreciation, overhead and capital requirements.
- Occupancy trends, lease expirations, tenant credit quality and collections, including the increase in the allowance for uncollectible accounts to $382,681.
- Progress and net proceeds from the remaining held-for-sale property dispositions.
- The sustainability of common and preferred dividends given negative FFO, negative nine-month AFFO and financing-dependent cash flows.
- The effect of preferred conversions, warrants and Operating Partnership units on future share dilution.
- Final acquisition valuations, related-party acquisition terms and any subsequent adjustments to preliminary purchase-price allocations.